Estimating Trade Elasticities and Asymmetric Trade Costs under Firm Heterogeneity

Eddy Bekkers

No 332379, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: Taking Örst order Taylor approximations an empirical strategy is proposed to estimate the trade elasticity using data on import shares, distance and gross output. The strategy is proposed for a Melitz economy. It consists of deriving two gravity type equations, a conventional gravity equation and a new gravity equation based upon the weighted sums of the import shares across trading partners. The new gravity equation follows from general equilibrium conditions on input cost adjustment. Using the estimates from the conventional gravity equation in the new gravity equation enables identiÖcation of the trade elasticity using only distance data. Employing the NBER-UN world trade data (Feenstra, 2005) for the largest 48 economies in the world at the aggregate level a trade elasticity of around two is found.

Keywords: International Relations/Trade; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 13
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:332379

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